Monthly Archives: February 2013

Jaan Sidorov at the Disease Management Care Blog hosts a mind-blowing edition of the Health Wonk Review. Seriously, it is really good. AND it includes a post from our own Nicole Fisher. Check it out here.

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Special thanks to Emily Egan for her thoughtful contributions, writing and ideas for this post.

In 2010 President Obama told the American public that if they liked their health care coverage, they would be able to keep it. And, despite his signature health reform law, the Affordable Care Act (ACA), intending to expand the country’s employer-based health insurance system, many now estimate that the law will, in fact, do just the opposite. It is projected that a consequence of the coverage provisions implemented in 2014 will be for many companies to drop health care coverage for their employees.

To date, the majority of research studies, modeling estimates and employer surveys have predicted some level of employer insurance drop. While this is usually framed as a negative consequence of the law, moving away from our employer system may actually have positive implications for the health care system and individuals.

As a result of an expanded individual market, Americans participating in the health care system might see benefits in three specific areas: cost, transparency and portability.

The benefits would not manifest through Americans losing employer sponsored coverage, but in gaining new coverage from a choice of plans in a more robust individual market.

The individual market for health care insurance is historically underdeveloped compared to the employer-sponsored market due to high costs, individual underwriting, and the ability of insurers to deny applicants based on pre-existing conditions. This system began as a result of wage caps during World War II, and then expanded when preferential tax treatment for employer plans was codified into law. The dominance of employer-sponsored insurance (ESI) was solidified in an era of single income households where the breadwinner rarely changed jobs.

However, the individual market will soon experience substantial changes as a result of the ACA, and could become much more attractive to individuals as their choices increase. Further, knowing that employees will be able to find decent coverage elsewhere could become an incentive for employers to dump ESI.

In terms of improving cost, it is possible that when individuals have more consumer choice with regard to plans (rather than a single plan or a choice of several tied to one employer); most would be likely to choose lower-priced plans that require higher deductibles and out-of-pocket spending. This price sensitivity would not only reduce the aggregate amount spent on insurance, but may work to reduce unnecessary utilization of medical services and more price sensitivity when it comes to choosing providers, medications, and treatment plans. Which could, in turn, lead to an additional improvement: transparency.

Anyone who has attempted to navigate through the health care system can attest to the lack of transparency from providers and health systems. Most individuals do not ever see pricing information, as they are largely shielded from health care costs via their insurance providers. However, if individuals begin paying for treatment out of pocket up to a certain deductible, the demand for transparent and bundled prices should increase, and providers would be forced to respond or risk seeing patients walk away. We’ve already seen the popularity of retail clinics among those who are uninsured and use of high-deductible health plans by many Americans, in part, because of the clear pricing structure.

The third potential positive implication of significant ESI drop could be felt through an increase in the demand for portability of plans. Labor markets of 2013 look very different from those of the post- World War II era. Job transitions occur much more frequently, and with ACA implementation, health insurance providers are likely to alter their network of physicians. For patients with complex or chronic conditions, switching networks and losing access to a trusted physician as a result of a job transition, a job loss, or early retirement, can have harmful health consequences. However, with individual insurance coverage, loyalty to providers exists outside of ESI. Americans could soon have more flexibility to keep their coverage by not using ESI.

While it would certainly be preferable for major shifts in health care to be the result of thoughtful and well-researched strategy, there are potential unintended positive results of new ACA policies that align incentives such that it no longer makes sense for employers to purchase expensive insurance plans on behalf of employees.

Consequentially, the transition is unlikely to be a smooth one in the coming years, but the benefits of changes in individual market insurance coverage could outweigh the unavoidable growing pains of the changing market.

If a cycle of positive individual market results increases, more and more people could move to the individual market, by choice or force. Only time will tell.

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We all know about Medicare, the federal government health insurance program for Americans who are over the age of 65 and/or disabled. We know that as we have begun to live longer, the Medicare population has ballooned and the costs of the program are, by most estimates, “unsustainable.” We also know that Medicare, despite being a government program, is beloved by America’s seniors. If it was an unpopular program, Congress would have cut it long ago, saved billions of dollars, and we wouldn’t be talking about debt ceilings. But, the fact is that the Medicare program is extremely popular, making any proposed changes to it–even changes deemed necessary to preserve the program–a political liability. That is why both Republicans and Democrats have blamed each other for wanting to cut the program. They know that if they can pass the blame effectively, it would be the kiss of death for their opponent.

But, while we know all of this, what far fewer of us know about is a special offshoot of the federal Medicare program–a privately administered model known as Medicare Advantage. In 1997, the passage of the Balanced Budget Act created what were known as Medicare+Choice plans. By 2003, when the Medicare Prescription Drug, Improvement, and Modernization Act was passed, Medicare+Choice was re-branded as Medicare Advantage. These Medicare Advantage plans work differently than traditional fee-for-service Medicare. Let me explain.

Under traditional Medicare, at the time they become eligible, individuals receive hospital coverage (Part A), which they have paid into during their working life (or that of their spouse), and they may pay a relatively low monthly premium to receive physician coverage (Part B). While these beneficiaries have to pay certain deductibles and co-insurance, the Medicare program generally covers all necessary health care services.

By contrast, Medicare Advantage works on a more capitated model. That is, the federal government pays private insurers who offer a Medicare Advantage plan a fixed dollar amount per member per month. Beneficiaries still have to pay their monthly Part B premium to Medicare, but they typically do not pay additional premiums, and they usually pay a copayment at the time of a health care visit, rather than a deductible and coinsurance. To top it all off, Medicare Advantage plans have to provide coverage that is as good as traditional Medicare, but they can also offer additional benefits, and most plans do offer things like vision and hearing benefits, and even gym memberships.

On the surface, these Medicare Advantage plans certainly seem advantageous. After all, who doesn’t prefer lower out-of-pocket costs and more benefits? This likely explains the growth in Medicare Advantage enrollment from 5.4 million beneficiaries in 2005 to 11.1 million in 2010. But there’s a catch. You read it, but maybe you glossed over it. Let me draw your attention to it again: “the federal government pays private insurers who offer a Medicare Advantage plan a fixed dollar amount per member per month.”

If you’re running a business and trying to make a profit, and your model is based on receiving a fixed monthly payment for individual, paying a significant portion of the costs of their care, and pocketing the difference, what are your incentives? If you answered, “To pay as little for their care as possible,” you’re on the right track. But they can’t do this by denying benefits to those of their enrollees who use the most care. What they can do, is work diligently to target only healthy people to enroll in their Medicare Advantage plan. The strategy is simple: By selecting healthy individuals who will use less health care, they keep their costs down, and generate larger profit margins. Meanwhile, traditional Medicare gets left caring for the sickest subset of the elderly and disabled population.

Recent research, which Jordan Rau of Kaiser Health News summarizes nicely, confirms that this is precisely what is happening. The bottom line is this: Medicare Advantage works to your advantage when you are healthy, but if you happen to get sick, the private insurance market will turn its back on you, and traditional Medicare will be there to greet you with open arms–provided we can keep it solvent. So, the next time you hear Republicans saying they want to privatize Medicare, it might sound like an attractive option right now, but think long and hard about what it would mean if you actually got sick and needed insurance on which you could depend.

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Note: In the interest of time, much of the substantive content of how Medicare Advantage plans work is adapted from that bastion of web-based knowledge Wikipedia. Here’s the link if you want even more details than the basics I included here.